Thread rationale

It seems it's time for a consolidated thread discussing the use of credit line promotional rates to make money. There have been many, many threads here on FW and elsewhere over the years that touched on this subject. Please help increase the value of this thread by adding other pertinent links to it, and I will try to keep the OP updated. Meanwhile, I'll keep this post largely factual, and keep my own opinions on "best practices" for the following post.

Background info

For many years, credit card companies have enticed customers to either open new accounts, or rev up usage on their existing accounts, by offering promotions that allow for borrowing their money at much lower interest rates than their standard agreements allow for. Since FW's inception and earlier, many FW members have used various means to profit from these offers. In recent years, as more have tried these strategies and CC companies have become more automated (and often more sophisticated), there has been a dramatic increase in reported problems with these strategies.

Credit line arbitrage: the "standard FWF technique".

The most commonly cited FWF strategy works roughly as follows:

Step 1: Receive an offer of (for example) 0% on BTs for one year from a $25K Chase line, with a $50 BT fee.

Step 2: Transfer all or almost all of the card's credit limit into a bank account (when available as on option), or to another credit card account (some offers require this). Some ways people have accomplished this step are detailed here .

Step 3: Stash that money in a safe investment, earning returns for the duration of the promotion.

Step 4: Pay the minimum monthly payments for 12 months (generally 2-3%).

Step 5: When the promo period ends, pay off the remaining balance with proceeds from the investment, leaving yourself with $0 balance on the card.

This basic strategy can then be repeated with other cards, the same cards, or even with multiple cards simultaneously. Some things to note about this approach:

-It ignores effects on one's credit score, or other reactions from lenders. In my opinion, this is a mistake. Nevertheless, some have managed to do this for years without adverse consequences.

-It assumes that the promotional rate is available for a limited time. Most very low offers are, but some are not.

-It assumes a fee for doing the transfer. It used to be that many BT offers didn't require a fee, now most do. (Also, the amount of the fees has increased notably in the last year, often going as high as $75.) If there is no fee, then there's no real incentive to do one big BT--splitting them up works well too.

-BT cards should ALMOST ALWAYS be segregated from cards used for purchases, UNLESS the terms of the BT require otherwise (in which case purchases should be for amounts as small as possible). The main reason is that once you're carrying a balance, purchases have no "grace period"--meaning that you're paying the purchase rate from the moment you buy anything. Even worse, the payments you make always go towards the lowest rate first. That means that if you have a 0% offer, and buy a $1,000 item at the purchase rate of 12%, then you'll keep paying $10 per month to finance that purchase until the ENTIRE BT is paid off. There are a few exceptions, as manuel notes below, but these are rare.

-The promo rate offers require that strict conditions might be maintained. In particular, late payments on the card, OR EVEN ANOTHER ACCOUNT, can cause the rate to be "jacked" up to 30% immediately. Anyone who isn't very careful to adhere to ALL these conditions is asking for major hassles.

-It assumes that the funds are invested in something ABSOLUTELY SAFE. If a payment is missed, the rate gets jacked, etc. funds should be readily available to pay it off.

Variations on the "standard technique"

There are MANY different variations on the standard technique. I will list just two options to start, and we can add more as the thread grows.

-Partial utilization/"Rollling maximization" strategies. The standard technique simply maxes out a credit line, and pays off the minimum each month after. This variation uses only a fraction of the line--generally 50% or less--OR pays off the FULL balance before the close of each billing cycle, only to draw it up again immediately after the cycle closes. The main reason for this variation it to keep one's credit score from tanking (it will ALWAYS drop, and often significantly, if one has a line report to the credit bureaus showing more than 50% of their available balance being used), and/or to keep a lender from getting nervous about "high risk activities."

-Coupling BTs with a HELOC or other LOC. The standard technique pulls cash from the CC companies, then parks it in some investment (money market, short-term CD, etc.) until the money is due back to the line issuer. This variation takes a line of credit, typically a equity LOC secured by the home, and uses BT money to pay down that line. When the money is due back to the CC company, the HELOC is simply drawn back up again to pay it off. In so doing, a standard competitive HELOC with, say, a prime -.5% rate would effectively yield 5.5%, a much higher rate than short-term money markets would yield. At the same time, one can more easily pay off the balance, simply by drawing on the LOC. For more on HELOCs and how they can be used, see this thread and its links, and this well done website.

Increasing credit (and goosing returns!) via the credit "Application Spree" / AOR / "App-O-Rama"

At least since the 1990s, several FWF members have bundled credit applications together so as to maximize the prospects for greater credit on better terms while containing associated damage to our credit profiles. In 2004, FWF member SUCKISSTAPLES coined the phrase "Application-O-Rama" to describe his own version of such a strategy. Since then, references like "AOR" and "App-O-Rama" have entered the FW lexicon, loosely describing various implementations and usages of this technique.

The core idea is to pick a time when's one credit score and profile are relatively good, and then apply for many new credit lines and/or line increaes all at the same time, so that the creditors will all see the "good" profile (before many credit "inquries", larger credit utilization, etc. does its damage), and accordingly award high line limits and generous promo terms.

While there are many reasons one might want to persue an AOR, the rationale that seemed to capture the imagination of most FWF members was to enhance the exploitation of low- or no-interest BT offers. Note that here at fatwallet, the term "AOR" is commonly confused with credit arbitrage / investing promotional rate money. THESE ARE ENTIRELY DIFFERENT IDEAS.

Many FWFers have combined the AOR and various credit investment techniques to try to maintain as much low/no interest money as possible. Several have posted threads about their own experiences. The most recent detailed threads I know about as of this OP are here and here .

Related useful threads

-Info on getting and keeping high credit scores is here.

-Thoughts on getting higher credit limits are here

-Information and experiences on getting LARGE credit lines is here.

-A list of creditors that allow the reallocation of large credit lines is here.

-A thread dedicated to recording and discussing instances of "adverse action" (cut or closed lines, loss of promotional perks, etc.) and their causes is here

-A thread devoted to getting your BT money into checking accounts is here .

(A final note on the origins of this thread, for anyone interested. In the no-fee CC BT deals on new accounts thread, popechild had some questions about investing money from low- and no-interest CC balance transfers. When I asked him to keep questions/discussions out of that thread, he politely pointed out that others had already been directed to that thread for such discussion. The last thread asking questions about this issue confirms popechild's point, and the FWF sticky thread links to taylor's cc thread, which also lists that same "no-fee CC" thread as the sole heading under "Balance transfers.")

Edit Updated to correct language about purchases coupled with BTs (thanks manuel), to add more links on HELOC per popechild's request, and correct typos.

Edit 7/06: Useful links section added, thread origins section moved to bottom.

Edit 10/06: Fixed typos, added link to getting BTs into checking accounts thread.

Edit 02/08: Changed title, added links.

Having tried to lay out the basics in my OP, here are some more subjective thoughts based on my own experiences and observations.

(A word on my own situation, to help readers judge my POV. I've been investing with BTs since the mid-90s, and have done heavily since about 2002. I currently float an average of between $5-600,000 of debt on CCs and LOCs, which is all debt generated by purchasing income-producing real estate. For more insight into my own goals and techniques, see this currently archived thread.)

Be VERY CAREFUL to make sure you make ALL required payments. Using CC promos can be a powerful tool, but the whole enterprise can come crashing down VERY quickly if any mistakes are made. In particular, make sure you have a system for getting ALL your minimum payments to EVERYONE in a TIMELY fashion. The easiest and probably best way to do this is with an automated billpay system, which allows you to "set and forget" monthly payments in advance, and have them made electronically at the appropriate time.

Don't undervalue your credit. The current conventional wisdom at FW seems to be that credit scores aren't any big deal. It is true that IF the above rule is followed, so that no payments are ever late, then much of the damage that can be done to credit profiles by using 0% money is reversible in fairly short order. But after an increase in the influence of credit profiles in recent years, yours is ABSOLUTELY CRUCIAL for reasons that go well beyond the traditional ones, like getting a good mortgage rate. A credit profile can determine whether you get a job, what insurance rates you get, what mortgage rates you qualify for, what student loans you can get, generally what hot financial deals you're targeted for, and of course, what other tasty CC offers you receive. So, it is FOOLISH to put it at risk for the sake of a few extra BT $. If in doubt, don't risk messing with your credit profile!

Take the long view. Many make the mistake of thinking only about their credit profile, BT options, etc. over the next 6-18 months. But this discounts the fact that this game can be played for the long haul--and, if one if careful, for progressively greater stakes. For example, I might be able to choose between a $75 signup bonus, and keeping enough inquiries & new lines off of my report to take an existing $20K line and double it to $40K. While that $40K line may not make me any money today, it might very well bring with it a great offer next year (say 0% for 12 months.) By setting myself up now to prepare for these options, I can save FAR more by using this extra line flexibility next year than I might by "selling" my credit for a relative pittance. Note I'm NOT saying don't ever sell your credit. Even though my credit earns me four figures every month, I'll still bite for an exceptional deal (like the Universal laptop deal from a couple years back.) But one should measure twice and cut once on this stuff, IMO.

Consider "rolling" and "partial" strategies. A stock market cliche is, "bulls make money and bears make money, but pigs get slaughtered." In this BT game, pigs are increasingly getting slaughtered too. The two most recent detailed AOR threads at FW--linked above in the OP--show just how much havoc even carefully planned AORs can wreak. My own view--which is grounded in years of observation and millions in BTs--is that by more cautiously and conservatively managing one's BT investments, most of these problems can be avoided. Chief among these is to keep OVERALL AND INDIVIDUAL credit utilization, AS REPORTED TO THE CRAs at reasonable levels--the lower, the better. In particular, I almost never carry >50% on any one line for any length of time, and I roll BT offers over between credit cycles wherever possible. Thus far (knock on wood), I've had no problems with BT investments.

Thanks Dave! In case you catch any flack for posting this info "again", count me as someone who's spent hours searching for old threads detailing how this works and never found a succinct explanation. There are plenty of threads detailing "lowest rates" and "best CC BT terms" etc., but most around here probably know the basics well enough to not need the how-to. This is perfect!

If you go into any more detail, I'd love to find out more about the HELOC option. Specifically, how does paying down the LOC with the BT give you a higher yield than the straight BT? I probably need to google a refresher on how HELOCs work, but could you give a simple example of how the HELOC process would work?

I<<n addition there are scenarios like the mbna 10% back cards - I had 32K or so on one of them, the last 3 months or so I started charging qualifying stuff on it - paid interest on the purchases but the 10% back far offset the interest in the limited term of the offer. As promos and 0% offers often come together I doubt this is the last time I'll see this.>>

Wouldn't your net gain be greater if you boomeranged the 32K off other BT offers and back to MBNA w/billpay to avoid interest?

edit: Read your post below Manuel....you're right interest on the $250 is $1.65/mo (at current 7.9% for example), but gets progressively worse each month...if you have other cards that pay to BT, like Citi or BofA Financial Rewards (which Fleet has become), you can earn $5/2.5K of BT, which essentially pays you to move money around. So far I've earned over $100 BTing <20K a total of three times if I recall correctly. I see we think alike sometimes

edit2: Without taking more bandwidth since my comments will only be OT, I can't agree more about RE being a bit risky at this time....something WB said awhile ago that the RE market is saturated with easy money that can be moved on a hairpin trigger's notice....something along those lines. <I know> he was referring to hedge funds heavily leveraged in RE....funny that we disagree so much about macro views but agree on some fundamental investment points.

Interest was trivial - less than a $1 for the first month - against $23 or so in taxfree credits. Really should have started this earlier, would have been quite profitable 6-7 months before the end of the 0%. This was the limited form of the 10% card though, didn't find the 250 a month or so that easy to reach - and resisted building up gift cards to get 10% back.

MBNA has been one of my mainstays for 0% and I can't imagine leaving 32K+ free in CL to use for billpay - would rather have that working for me all the time as long as they have 0% offers. And just as I don't find enough 0% offers to be able to run at below 50% of CL, I also don't find 32K or so one's to use for boomeranging.

Think the 50% above discussion has been done to death at FW though, and I was really just trying to bring up that sometimes charging on a 0% card makes sense. Not often though.

There's really two sides to this equation(3 if you include credit score), one is the rate you have to pay(lately 0%+anyFees), the other is the rate you get(hopefully high).

However if you have reasonable access to cash - other savings and HELOC(preferably both) it's possible to do a little better than ing/EB rates. In my case I'm still floating stuff like CDs and SBs from 2-4 years ago - with rates averaging around 5%. If I hit a perfect storm/AccountReview scenario I'd have to pay some early cashin penalties and/or go on the HELOC to avoid much higher rates but I could do it.

In addition the HELOC is a great way to occasionally partially cleanse my CR, and then dive back in again.

Any other ideas on ways to increase the return side of the equation - that don't violate the basic tenent that one might be forced to pay back most or all in a hurry???

As I think we've discussed before RE scares me - somewhat irrational I'll admit - I'm a reluctant owner and have no interest in more. Using CDs and SBs I'm lucky to break 400 a month but I'm floating a lot less money than you.

Understand your point about intro lines and the CR hit, but aren't most of the OPEN line no fee 0% BTs only available to selected folks - certainly been my experience at bofa and mbna?? In the bOFA case I think the responses to my post were overwhelmingly that they didn't see it. Did run with the principal bank 0%s for a while.

Do worry some about the HELOC/LOC angle, not sure but in a true perfect storm I think these might get yanked away as well. I'm a fairly conservative investor outside this strategy so I could sell some munis, etc. and pay off the CCs if I had too. EDIT: If I were a 100% equity type I'd probably be less aggressive with BTs.

Don't think you mentioned it but it's worth noting that for MFJ folks there's a lot of ways to work both credit reports, and scale up a bit - although it can involve some stern look from the spouse.

DaveHanson said:(like the Universal laptop deal from a couple years back--anyone have the link?)
http://www.fatwallet.com/forums/arcmessageview.cfm?catid=52&threadid=189431

Think one's marginal rate is also a big factor in the tradeoffs between 0% offers and other deals. Know from past posts that you've managed this wonderfully, I aint been so successful. This makes the $100 credits and $150 gift cards and Cash Back options awfully attractive, and things like bank bonuses relatively unattractive. Happy to make what I can taxable but I am willing to ding my credit for nontaxable money - and the bar has risen in the last few years from $20-50 to 100+.

This is also where - think tooshy mentioned this in another thread - it's very attractive to build up a core of SBs nurse it along for many years. Then in the happy or unhappy event that one finds oneself in a much lower tax bracket cash them in.

Does anyone know of other taxdeferred options like SB, that are still somewhat liquid - kinda?